Earned Income: How much is just right?

earned income

As the saying goes, “money makes the world go around!” Fortunately, or unfortunately, there is a lot of truth behind this statement.

We need money for basics such as food, shelter and clothing, and then, as we advance up Maslow’s Hierarchy, for additional comforts such as heath care, a nice home and a car. In business, money is needed to produce goods and services and support growth in the form of enhanced marketing campaigns for reaching more customers, buying new equipment to increase capacity. In these ways, money does make the world go around.  The question, however, is how much money is enough?

The answer to this question is unique to everyone. On one hand, more money sounds better than less, right? On the other, with more money comes more responsibility. To figure out the right amount of earned income for you, consider these factors:

What is the money for?
As touched upon above, money has applications in both our personal lives and our businesses. When answering this question, you’ll want to consider both.

  • From a business perspective, money can be viewed in terms of sustainability and growth. For sustainability, you want to be generating revenue levels that support current activities. This means covering fixed costs, and sustaining profit margins to also cover variable costs. If you want grow, however, you want to also generate enough revenue to invest in developing high levels of sales.
  • From a personal level, money can be viewed at three levels: sustainability, comfort and aggressive growth. Sustainability covers routine living costs, as well as projected maintenance for any homes, automobiles, and equipment. Comfort includes extras such as date nights, vacations, and education funds. Aggressive growth income goals include luxury items as well as investment strategies such as vacation homes, real estate, money markets, etc.

How do you want to spend your time?
As mentioned above, more money means more responsibility. This is a key factor to respect when determining your ideal income goal. Higher income goals require more time spent earning and managing money. Do you want more social time? Do you want to enjoy experiencing your kids growing up? Do you and your spouse want more time together? The goal here is balancing life with whatever you do to generate income.

What are the tradeoffs?
While obtaining the ideal balance between your work and personal life is an important factor, there are also tradeoffs to consider that influence income goals. For example, is it important for you to put your kids through college or send them to private school early on? Is there a trip you’d like to take for a key wedding anniversary? In cases like this, compromising free time for fee-time may make sense.

What is your long-term goal?
Responses to each of the prior questions will change over time. For this reason, this last point is most relevant. By setting your long-term income objectives, you are more likely to support your short-term needs in a way that considers the bigger picture. In addition, by writing down your long-term goals and tracking actual performance against objectives, you also increase the likelihood of success. In short, what you track expands.

While money may make the world go around, it still doesn’t guaranty happiness. By considering the above questions, however, you’ll be in a better position to have both and on your terms.

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